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USAir Agrees To Buy Piedmont; TWA’s USAir Bid Sidetracked

March 9, 1987

NEW YORK (AP) _ USAir Group Inc. moved quickly Monday to escape a takeover threat by Trans World Airlines, announcing a $1.59 billion deal to buy Piedmont Aviation Inc. and winning a court order to stop TWA from acquiring more USAir stock.

The USAir-Piedmont agreement represents one of the last remaining possible marriages among big independent airlines in the rapidly consolidating business, and analysts said it possibly doomed TWA’s attempt to acquire USAir.

″It seems that USAir definitely has Piedmont,″ said Andrew Geller, who follows the airlines for Provident National Bank in Philadelphia. ″It looks like TWA is sort of out in the cold on this one.″

John Diffendal, who follows the airlines for the Nashville, Tenn., investment firm J.C. Bradford & Co., said: ″USAir realized it had to take action or it would be gobbled up. At this stage it looks like USAir has enough of a lead so that TWA might not be able to effectively intervene.″

USAir and Piedmont had verged on a merger pact March 4 when USAir received a $1.65 billion cash acquisition offer from TWA Chairman Carl Icahn, a wealthy financier renowned for his adventurous takeover forays. Icahn’s offer was rejected by USAir, which called it a shoddy attempt to wreck the Piedmont deal.

Under the agreement, USAir will pay $69 in cash for each of Piedmont’s 23.1 million shares outstanding, sweetened over two earlier offers of cash and securities. Their merger would form the nation’s seventh largest airline, with about 7 percent of the market.

As part of the agreement, railroad giant Norfolk Southern Corp., which had been a rival bidder for Piedmont, agreed to sell its 20 percent stake in the airline to USAir and fully supports the merger, the joint statement said.

″We believe that the combination of these two carriers will create a strong airline which will be able to compete effectively against the industry giants,″ the statement said.

At the same time in Pittsburgh, USAir’s major hub, U.S. District Judge Maurice Cohill issued a temporary restraining order preventing Icahn from acquiring additional USAir shares.

Icahn disclosed Friday that TWA owned 15 percent of USAir’s common stock and would possibly seek more. But under federal rules for airline mergers, an acquiring airline can hold only a maximum 10 percent of an acquired airline until a merger is formally approved.

USAir won the restraining order in a suit alleging ″Icahn and TWA comitted willful violations of several federal laws and made misleading statements to government agencies, to USAir Group shareholders, and to the public.″

Cohill set a hearing for Tuesday morning to consider a permanent injunction. Both USAir Chairman Edwin I. Colodny and Icahn were expected to attend, USAir officials said.

Icahn was in a meeting and unavailable to comment, a secretary at his New York office said. Mark Buckstein, TWA general counsel, said he had no comment on the USAir-Piedmont pact or the court order.

But Buckstein confirmed TWA had refiled an application Monday to acquire USAir with the Transportation Department, which rejected the first application last week as inadequate. He would not speculate on TWA’s next move.

The developments in the three-way takeover scrambling were reflected on Wall Street, where USAir stock tumbled $3.37 1/2 a share to $47.75; Piedmont fell 62 1/2 cents a share to $67.62 1/2 ; and TWA plunged $2.50 a share to $28.

Piedmont and USAir have long been considered potential takeover targets because of their consistent profitability and impressive growth. Business travelers make heavy use of both airlines, which operate primarily in the East.

However, USAir also is in the process of acquiring Pacific Southwest Airlines, which serves western states.

A marriage of Piedmont and USAir would come against a background of rapid consolidation in the deregulated airline industry, in which size has become crucial to profitability.

Over the past year Texas Air Corp., owner of Continental, has purchased People Express and Eastern, making it the biggest airline operator; Northwest has acquired Republic; Delta has acquired Western and TWA has acquired Ozark.

TWA still suffers from a weak domestic system, and Icahn has said it needs to absorb another carrier to remain competitive. But analysts expressed doubt that he could acquire a combined Piedmont-USAir.

″TWA could have been able to finance a takeover of USAir, but with Piedmont in there as well, it’s too big a bite,″ said Edward B. Keaney, airline analyst for the St. Louis investment firm Burns, Pauli & Co. Inc.

Analysts also expressed skepticism about the ultimate motives of Icahn, who acquired TWA last year. Although Icahn has since reversed TWA’s heavy losses, there is a widespread suspicion he wants to get out of the airline business.

″Because it’s Carl Icahn, nobody’s taking what he does at face value,″ said Anthony Hatch, airline analyst for Argus Research Corp. in New York.

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